January 9, 2019
Top Causes of Loss in the U.S. and the World
The largest financial losses worldwide come from fires/explosions and aviation incidents, according to an analysis of the Top Causes of Loss of 470,000 insurance losses around the world by Allianz Global Corporate & Specialty (AGCS) Insurance.
Here are a couple of other quick takeaways from the claims review:
Increased Litigation Costs: In general, litigation is involved in far more liability claims than property claims, with one third of all liability claims involving litigation. Plus, with increasingly bigger personal injury claims, especially in the U.S., that percentage is increasing. Tougher environmental and consumer protection laws are also impacting the trend. Litigation was involved in just one percent of property claims.
Technology is creating new risks: We can expect “to see more liability claims from emerging technology. For example, autonomous vehicles would see a shift in liability and claims from drivers to manufacturers and software providers,” according to Peter Oenning, liability claims specialist at AGCS. “Such claims are likely to be harder to investigate and establish cause, and could result in increased cost and workload per case for insurers.”
The ranking of claims by highest value in the U.S. was
- Fire/explosion: 22 percent
- Storm: 18 percent
- Aviation collision/crash: 10 percent
- Faulty workmanship/maintenance: 6 percent
- Defective products: 5 percent
- Other: 39 percent
The review says storm damage ranks as the second top cause of loss (18 percent) in the U.S, driven by 2017’s record-breaking hurricane year — and the devastating impact of Harvey, Irma and Maria — as well as further losses from hurricanes Florence and Michael during 2018. However, a number of recent large blazes and explosions, which have caused losses in excess of $100 million and impacted industry sectors ranging from oil and gas to chemicals to automotive, ensure that fire is the top cause of corporate insurance claims in the USA, accounting for 22 percent of the value of all claims. Aviation collision/crash incidents are the third top cause of loss (10 percent). By number of claims, automobile crash/collision is the most frequent cause of loss accounting for one claim in 10. This is followed by water damage and faulty workmanship/maintenance incidents.
Although the report focused on international trends, many of these observations are worth noting for their applicability to business in the U.S.:
- Energy: Claims frequency in the oil and gas sector has been relatively consistent lately. However, a number of large fire and explosion incidents, the return of powerful windstorms, the changing price of oil and the growing potential for cyber incidents are of major concern to this sector.
- Finance: Financial claims notifications continue to rise globally, while claims are increasingly larger, more complex and international in scope.
- Liability: Although claims in economies like the U.S, have been decreasing following improved safety and product quality, severity continues to rise globally. Also, the potential for ever-larger liability claims is driven by many factors including increasing complexity, internationalization of claims and rising legal costs. Around a third of large corporate liability claims involve litigation, compared with property insurance where less than one percent of claims do, on average.
- Property: Changes in corporate risk and demand for broader coverage to support the impact of innovative technologies are driving a trend towards increasing volatility in property claims, with larger claims, as well as supply chain and cyber losses.
- Aviation: The global airline industry recently experienced its safest year ever, yet the number of aviation claims shows no sign of abating. Increasing repair costs from composite materials and more sophisticated higher value engines, combined with relatively low deductible levels, are putting more losses within the scope of insurance.